The Phillips Curve: The Process of Disinflation

Definition: Disinflation is the lowering of a positive inflation rate.

If inflation gets too high, policymakers will desire to bring it back down through a process called disinflation. They will try to accomplish this by contracting AD. This can be a painful process as it will increase the unemployment rate in the short-run as the prices (revenues) decrease at a faster rate than wages (costs).

The pain will continue as long as inflationary expectations remain higher (5%) than the actual inflation rate (2%). Once inflationary expectations come down to the new actual inflation rate, the SRPC will shift downward (or leftward) and the economy will return to the NRU.

This video is made for 1st year college students or AP/IB Economics students. It focuses on foundational economic concepts.

[crazypasta]

Bro once the money is printed and inflation goes up it won't come down... deflation is like putting the toothpaste back in the back...